In August, HMRC published a consultation document on adding a new weapon to its anti-avoidance armoury: penalties on ‘enablers’.
While many were enjoying their holidays, HM Revenue & Customs (HMRC) released yet another paper examining ways of “strengthening tax avoidance sanctions and deterrents”.
Over recent years, HMRC has been gaining the upper hand in its unending battle with promoters of aggressive tax avoidance schemes:
- There is now a broad requirement on promoters to provide details of schemes to HMRC under the disclosure of tax avoidance scheme (DOTAS) rules.
- A General Anti-Abuse Rule (GAAR) was introduced in 2013. The latest Finance Bill, still stuck in the parliamentary process, contains measures creating tax-geared penalties for cases caught by the GAAR.
- The 2014 introduction of accelerated payment notice legislation, effectively removing the cash flow advantage of many schemes, has raised over £2.5bn, with more than 50,000 notices issued.
- Only last month HMRC won two major tax avoidance cases involving in excess of £820m in tax and outstanding interest.
- The current Finance Bill also contains measures to attack certain “disguised remuneration” schemes set up in the Noughties which HMRC had failed to defeat in the courts. Those affected will have to clear loans they had thought were never going to be repaid or face a large tax bill.
HMRC’s latest stance is that “The people who introduced users to the avoidance, or facilitated its implementation, bear limited risk or downside when avoidance arrangements are defeated by HMRC.” Arguably this is untrue, as those who devise or promote failed schemes could suffer reputational damage and/or legal action from their disappointed clients. However, that risk is not enough in HMRC’s view and it is now proposing that anyone in the “a whole supply chain of advice and intermediation” of tax avoidance should be subject to penalties. At this stage there is no settled basis, but one option the document suggests is to base the penalty for each party involved on the amount of tax supposedly avoided.
It must be stressed that the HMRC paper is not targeting general tax planning, such as making full use of annual exemptions, allowances and reliefs explicitly provided in legislation. These tactics can still deliver useful tax savings without provoking unwelcome enquiries.